Marks Paneth | CARES ACT – Tax Update: RMD Rollbacks Must Be Completed by August 31, 2020

The CARES Act enabled any taxpayer with a Required Minimum Distribution (RMD) due in 2020 from a defined-contribution retirement plan, including a 401(k) or 403(b) plan, or an IRA, to skip those RMDs this year. This includes anyone who turned age 70 1/2 in 2019 and would have had to take the first RMD by April 1, 2020. This waiver does not apply to defined-benefit plans. The IRS allows anyone who already took an RMD in 2020 from these retirement accounts to roll those funds back and avoid taxation. This “rollback” must be completed by August 31, 2020.

An IRA owner or beneficiary who has already received a distribution from an IRA of an amount that would have been an RMD any time in 2020 can repay the distribution to the IRA by August 31, 2020. This repayment is not subject to the one rollover per 12-month period limitation, so if the owner or beneficiary received RMD distributions in monthly payments, these payments may be rolled back to the IRA by August 31, 2020.

In addition, the restriction on rollovers for inherited IRAs is also waived, so a beneficiary who received an RMD from an inherited IRA and ordinarily cannot roll it back, is allowed to roll it back to the inherited IRA by August 31, 2020. If the beneficiary received an RMD from a defined contribution plan and the plan administrator will not accept the “rollback,” the RMD may be rolled over into an IRA.

RMDs received on or after September 1, 2020 may still be returned, subject to the regular rollover rules including the 60-day deadline and one-per-year rollover limit.

Marks Paneth will continue to monitor developments and will provide updates as they become available. Contact: responseteam[at]markspaneth.com.

Compliments of Marks Paneth – a member of the EACCNY.